Would Obama’s Refinancing Plan Boost Ailing Housing Market?

October 24, 2011 at 12:00 AM EST

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With millions of Americans "underwater" on their mortgages and millions of homes facing foreclosure, President Obama unveiled a revamped home-loan refinancing program Monday during a stop in Nevada, which has the country's highest foreclosure rate. Judy Woodruff and guests examine the politics and substance of the plan.

JUDY WOODRUFF: Now, back here in the U.S., the big problems still facing the housing market, as states struggle to cope with mounting foreclosures. President Obama proposed some corrective steps today at the same time he heads into a tough reelection campaign.

With some 11 million homeowners underwater on the value of their homes and five million foreclosures expected in the next few years, housing remains a major drag on the U.S. economy. Today, the president headed west to Nevada, the state with the highest foreclosure rate in the country, to roll out a new plan to help some homeowners. The administration announced that it would adjust the so-called Home Affordable Refinance Program, or HARP, to make it easier for borrowers to refinance their mortgages, regardless of how much their home values have dropped.

It also would eliminate or waive fees. The plan is open to homeowners with mortgages guaranteed by Fannie Mae and Freddie Mac before June of 2009. Previously, the program wouldn’t let homeowners refinance if their mortgage loan exceeded 125 percent of their home’s value, a problem for many Americans.

Secretary of Housing and Urban Development Shaun Donovan told the NewsHour the changes could make an important difference.

SHAUN DONOVAN, U.S. Housing and Urban Development Secretary: In normal times, a homeowner that has a mortgage of $250,000 at a 6 percent interest rate could go out and refinance at 4.5 percent or lower, given how low today’s interest rates are. That would be a savings of $250 a month, $3,000 a year.

JUDY WOODRUFF: Nearly 900,000 borrowers refinanced under HARP until now, far short of an intended goal. Donovan said he didn’t know yet how many people would take advantage of the program now, but said there was a market to be tapped.

SHAUN DONOVAN: There are about four million underwater homeowners who have a Fannie Mae or a Freddie Mac mortgage and could save a significant amount of money by refinancing. That’s the eligible pool. Some share of those will actually take this advantage. They will choose to refinance.

JUDY WOODRUFF: The president came under new fire today for not doing more to deal with the housing crisis — the latest salvo, a Web video from Republican presidential candidate Mitt Romney saying the situation has worsened.

MAN: Welcome.

MAN: Welcome.

WOMAN: Welcome.

WOMAN: Welcome to Nevada.

MAN: Welcome to Nevada, President Obama.

JUDY WOODRUFF: But Romney and the rest of the Republican field didn’t offer specific plans of their own to deal with foreclosures during a debate last week.

CHRISTIAN BODIG, Las Vegas, Nevada: What would you do as president to help fix the overall problem of real estate and foreclosures in America?

MITT ROMNEY (R), Presidential Candidate: The right course is to let markets work. And in order to get markets to work and to help people, the best then we can do is to get the economy going. And that’s why the fundamental restructuring I have described is so essential to help homeowners and people across this country.

JUDY WOODRUFF: During the president’s stop in Nevada today, he said his plan would help, but also acknowledged its limits.

PRESIDENT BARACK OBAMA: These steps that I have highlighted today, they’re not going to solve all the problems in the housing market here in Nevada or across the country. Given the magnitude of the housing bubble and the huge inventory of unsold homes in places like Nevada, it’s going to take time to solve these challenges.

JUDY WOODRUFF: Some people could begin refinancing in December. But for most borrowers who are underwater, it would begin next year.

We look now at the housing crisis in Nevada and its political implications. Jon Ralston is a columnist for The Las Vegas Sun and host of the television show “Face to Face With Jon Ralston.”

Good to have you with us again.

JON RALSTON, The Las Vegas Sun: Hi, Judy.

JUDY WOODRUFF: Let me first ask you, how bad is the housing situation in Nevada and, overall, the economy?

JON RALSTON: Well, you heard the president say “in states like Nevada.”

There is no state like Nevada, Judy. We have the highest foreclosure rate in the country — 60 percent of the people in this state are underwater on their homes. We have the highest unemployment rate in the country at 13.4 percent. And those are just the people who are still looking for jobs.

It’s probably much worse than that, maybe double that number. And President Obama stepped right into one of the worst parts of that housing crisis today in Las Vegas.

JUDY WOODRUFF: And to what extent, Jon, do you believe people there believe this is the president’s fault? Or where do they assign responsibility?

JON RALSTON: Well, I think they’re just upset.

And I think that they’re starting to tune out what anyone says, including the president. They just want some help of any kind. It was interesting. You played those responses from the debate. I was actually stunned. As much as the Republicans want to talk about free market solutions, I think a lot of people in this state and especially in this city, where it’s really been bad for the foreclosure crisis, think that that free market wasn’t so free, that it was rigged.

They see banks being bailed out. They see Wall Street being bailed out. And they wonder when they’re going to get some relief. You know, that plan that the president announced today, the expansion of HARP, probably won’t help a lot of the people he was talking to today, Judy.

Let me just give you one example. That street that he was on today, the president was on today, a house there, a specific house we looked up was worth $210,000 in 2007. A month ago, it sold for less than $70,000.

JUDY WOODRUFF: So — but you’re saying many of these houses, many of the homeowners in your state are not going to be able to take advantage of what the administration announced today?

JON RALSTON: Well, as you know, the details are still coming out on this. If it’s just Fannie and Freddie mortgages guaranteed before 2009, I’m not sure how many people that’s going to help.

And some of these people are underwater on their homes way more than 125 percent. How far are they going to go? And at some point, this does cost somebody some money. So I think it’s still unclear. But it’s interesting, because I think President Obama had a lot of reasons for going into that specific neighborhood because it’s been so hard-hit.

And of course there’s a campaign component of all this. He came from the Las Vegas Strip, one of the fanciest hotels on the strip, the Bellagio, where he raised a lot of money, to this very poor neighborhood, a predominantly Hispanic neighborhood, a community that voted for him by 70 to 20 in 2008, but has been very hard-hit, very upset. And his numbers are not nearly so good with Hispanics right now in this state, Judy.

JUDY WOODRUFF: Very quickly, Jon, any sense of specifically what people want to help them with the housing problem?

JON RALSTON: Well, I’m sure they’d love for a truck with a bunch of money and dump it on their doorstep. But I think they want some light at the end of the tunnel. They want some hope.

There’s a foreclosure mediation program here put on by the state. The governor says it’s a model for the country, but it hasn’t worked as well as it should have, because the banks are making it difficult. They want — I think they want to see some action to force the banks to deal with them.

On the other hand, the president even probably agrees with the Republicans that you can’t just have the banks forgive all those loans. Could they do better principal reductions? Could they work more solicitously with the homeowners? That remains to be seen. They want relief, Judy. They don’t care who it comes from, who takes credit.

JUDY WOODRUFF: We hear you.

Jon Ralston, joining us from Las Vegas, thank you.

And, next, we assess the substance of the plan, what kind of difference it might and might not make.

We check in now with two people who watch this closely. John Taylor is president of the National Community Reinvestment Coalition, which focuses on the housing in traditionally under-served communities. He has served on housing advisory boards for both Fannie Mae and Freddie Mac. And Susan Wachter, she is professor of real estate and finance at The Wharton School at the University of Pennsylvania. It’s good to have you both with us.

I’m going to start with you, Susan Wachter. We just heard — and I believe you were able to hear him — Jon Ralston in Nevada describing the situation out there. He said what people want is a light at the end of the tunnel, some kind of help.

Do you see in this new plan that the administration rolled out today something that homeowners like them will be able to grab on to?

SUSAN WACHTER, Professor of Real Estate, University of Pennsylvania: Yes, I do. I think it’s a win-win. I don’t think it’s a game-changer, but I think it does help get to that light at the end of the tunnel.

I think it’s a help. It’s a help not only for the homeowners who will be able to take advantage of the historically low interest rates who could not before because they were underwater far too far. And, of course, that’s directly — Nevada will have many of those homeowners.

But it also will help the market, because fewer homes will come on to the market, continuing downward pressure.

JUDY WOODRUFF: John Taylor, what do you see in today’s proposals from the administration that could make a difference?

JOHN TAYLOR, President and CEO, National Community Reinvestment Coalition: I’m not as optimistic as my friend Susan, but — because I really look at this as incremental steps, and that what we really need right now is a giant leap forward.

There’s simply not going to be an economic recovery without housing recovery. And because they have limited it to — the people who can access this program are those who are already paying, with one exception — if you were late 30 days in the last 12 months, you would still qualify.

So people who were just hanging on, whose mortgage payments are too much, but are paying almost every month, you know, seven — say, seven out of 10 months, they’re on time, but three months, they’re delinquent, they won’t be eligible. And those are precisely the people who would be the most helped by this. And it’s the biggest pool of people I think that would become eligible.

The pool is just too small if you limit it to those who are either current on their loans or just had one delinquency in the last year.

JUDY WOODRUFF: So, Susan Wachter, if it’s just limited to this small group, how will it make a difference?

SUSAN WACHTER: Well, it’s small relative to the overall depth of the problem of potentially 11 million homes that are out there with borrowers who are underwater.

But it might help as many as a million homeowners who are underwater. And that’s a million more than have been helped to date. So, for those homeowners, it clearly will make a difference. And it can help in a market that is very fragile at this point. And whether it’s at a point of a second leg down — and, of course, if that happens, then — I’m with John — we are near a real problem, not only for housing, but for the overall economy and a vicious cycle.

But it can help stabilize in 2012, which is going to be a year of great concern and need for stabilization, not only from that, but from other factors, from other interventions, like keeping interest rates low, so that such plans like this, borrowers can access these really historic low interest rates.

JUDY WOODRUFF: So, John Taylor, this point again that we heard Jon Ralston raise that essentially the administration is saying they’re going to cover — if your home is — if the value is less, I guess, or has dropped more than 125 percent, the overall value of the mortgage, then — is that the part of it is that you think…

JOHN TAYLOR: They’re actually — sorry, Judy, but they’re actually going to not have any ceiling. So regardless of the loan-to-value, you will be eligible if you’re current on your payments or only missed one payment or have been delinquent one time in the last 12 months.

So they’re actually removing — but there’s a problem there, too, because the current level is 125 percent of loan-to-value. So, if your — if your mortgage — the value of your house is 125 percent less than what — if your mortgage is not — I’m sorry. I’m getting this wrong.

If your loan-to-value ratio of your house is 125 percent, they’re saying that it can go up to 150. It can go beyond that. The problem is what Fannie and Freddie have been doing is only refinancing loans — 95 percent of the loans they have refinanced have been at 105 percent.

So, even at 125, which is their current level, they haven’t been making these kind of adjustments or these refinances for even loans up to 125 percent. So what’s going to make them go very high to 150, 175 percent of loan-to-value ratios?

It’s going to be a real challenge for them. And so I obviously — all of us, Susan, everybody wants us to grab this housing problem and this foreclosure problem by the throat and kill it, because it’s killing the economy. But if we don’t have either principal write-downs, we don’t have the option of bankruptcy, where people can protect their homes, we don’t have what FDR did when houses crashed for his citizens and he put a moratorium on foreclosures and then created a corporation to refinance these loans and make these loans — we don’t have any of that.

JUDY WOODRUFF: Right.

JOHN TAYLOR: It’s just all voluntary, let’s all work together and hope that, as we do these incremental steps, it’s going to make a difference.

And, as Judy pointed out — as Susan pointed out, we have a monumental task in front of us. And we need something bigger than these incremental steps.

JUDY WOODRUFF: Susan, you want to respond to that?

SUSAN WACHTER: I do.

Nonetheless, this is a positive step. This is win-win. And it’s not just — you know, that $70,000 house that we heard from Jon, that would qualify, any home, however underwater, as long as borrowers are current, with that small exception of the 30 days.

And those people should have this option, so they now will have this option. Why not? This is something that is, should be available. And, besides, there are details in the plan which are pretty ambiguous. So I’m not sure how it’s going to come out. But, nonetheless, the details are that more of these will close than before.

The fees will also be reduced that Fannie and Freddie have been charging. And that could be a game-changer also…

JUDY WOODRUFF: And we know there are several elements.

SUSAN WACHTER: … to some degree.

JUDY WOODRUFF: Just quickly to you both.

JOHN TAYLOR: Yes.

JUDY WOODRUFF: Susan — Susan, just quickly, what — assuming some element of this works, what about the larger housing picture? What are we left with as we look at the next year?

SUSAN WACHTER: Well, obviously, this is not going to solve our problem. It can help.

The problem is, if housing prices start to decline again, then we might be in a vicious cycle, the housing market weakens, and leading to the overall economy weakening, leading to the housing market. We need price stability. With interest rates at historic lows, we could get to price stability. The key is job growth.

JUDY WOODRUFF: And, John, the same question. What does the rest of the housing picture look like, setting this aside?

JOHN TAYLOR: Well, considering we have 10 million foreclosures facing us, and unless we get the housing — the building of housing industries restarted, we’re going to not see the kind of job creation that I think everybody is hoping for.

Susan is right. We need to create jobs. But we will not have an economic recovery if we don’t have a housing recovery. And we can’t worry just about helping a million people. That’s obviously important. We need to help four or five million people to prevent them from going into foreclosure, because that will simply tear against and work against anything this administration or anyone does to create jobs.

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